Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Difco who wrote (43835)	8/10/2011 12:47:53 PM
From: Jurgis Bekepuris	1 Recommendation Read Replies (3) \| Respond to of 78476

My experience of March 2009 was that I was fully invested 2 months prior to the bottom and had nothing to bet with - there are two losses in my mind: capital loss and opportunity loss. And both are only known in the hindsight. OK, I am not for 100% stock-0% cash allocations. However, it is stupid when people say "oh, if only I didn't put all my cash into stocks in Jan 2009, I coulda bought at bottom in March 2009". No, in Jan 2009 you did not know that the bottom will be in March. And in March, you did not know either that it was the bottom and that market won't go lower in May. So you only could have had 20% cash in January and 0% cash in March by chance. There are 3 feasible approaches: - You spend cash while market is dropping. You are very likely to be out of cash before bottom. (I am somewhat in this camp). - You never go below X% cash. (Buffett is in this camp). Well, you will have cash at the bottom, but it will stay cash, so you can't boast that you bought at the bottom. - You only spend cash when the market is recovering after bottom. (Dale is in this camp, AFAIK). Once again, you won't have bought at the bottom. In all three scenarios you have similar experience as you had in March 2009. Anyone who says that they had 50% cash and spent it all at the exact bottom is either extremely lucky or boasting at the party. It is not believable and even if it's a fact, it's not repeatable. Sure, you can try to distribute cash spending so that you won't run out of it today or this week. But if the downturn takes 6-9 months like it was in 2008-2009, it's very likely that you either will run out of cash before bottom or that you will have cash during the bottom and after it and it won't be all used for investments at cheapest price. And coming back to your statement: opportunity loss - yes, but hitting the bottom is not opportunity, it's winning the lottery chance. capital loss - no, if you did not sell at the bottom. You would not call it capital loss if stock went from $10 to $12 and you bought it there and it went to $15, so why would you call it capital loss if stock was at $12, you bought it and then it went to $10 and back to $15?

To: Difco who wrote (43835)	8/10/2011 9:18:06 PM
From: Shane M	1 Recommendation Read Replies (1) \| Respond to of 78476

My experience of March 2009 was that I was fully invested 2 months prior to the bottom and had nothing to bet with Difco, Bingo - I agree. My tendency is to pull the trigger too fast and I have to fight that urge. There's no worse feeling than being out of ammo as valuations pass "cheap" and "stupid cheap" into the "ridiculously cheap" range. Like yourself, studying past trades has told me I tend to buy too fast on the way down. Even trades that work out very well for me could've been so much better if I was just slower about buying into aggressively down markets. I would ALWAYS run out of cash before the market ran out of DOWN. Market timing may be impossible, but the recognition that I tend to be "over-optimistic" during market collapses is something I _can_ guard against. They generally last longer than I expect, and tend to fall farther than I think. A big part of investing is understanding our incorrect tendencies and your observation is dead on in my view. That said, this is the first market panic where I've luckily been positioned with a large chunk of cash (I'm sitting well over 50% cash right now) so my emotions are very different than in previous collapses. I'm in uncharted ground because my emotional detectors are all messed up - these kindof drops used to dumbfounding to me - I'd be like a deer in headlights without a plan except to ride it out and take my losses. Now I'm almost eager to put money in - but based on previous collapses that's telling me I haven't waited enough. Previous bottoms have a selling fatigue about them that hasn't had a time to develop - that "just get me out - I don't care - just make the losses stop" feeling about them. Maybe it's because of my different cash positioning that my emotions are mis-calibrated this time, but I feel I have to pace myself, lower my buy sizes, set a phased multi-month buy plan - pick up cheap stuff when I can - maybe sell some rallies. I even purchased a short fund the other day to make my position a bit more market neutral (I'd never done that)... but overall trying to stay small, small small until that capitulation/fatigue sets in. Long: AAPL, EBIX, TEO, CHL, and INTC right now. Added a bit to TEO the other day during a big drop but consciously reduced the buy size to address my tendency. (EBIX is the one that's really killing me - but I can't bring myself to break up with her.) anyhow, all imho

To: Difco who wrote (43835)	8/11/2011 7:46:27 PM
From: geoffrey Wren	Read Replies (1) \| Respond to of 78476

I do not believe in cash in the investment account, unless you are prescient enough to see a correction coming. If you do see one coming, and have confidence, then sell half your portfolio or more. But don't just sit with 10 or 20% cash all the time because crashes sometimes come. When a crash occurs, sure you do not have cash. But you have your holdings. Some will be holding up well, and others will be tremendously down. So sell some of the stocks holding up well and buy some of the better bargains. This approach works a lot better if you are able to be on the computer during the market day to make some moves quickly.